In Japan, JCB Co. teamed up with NTT DoCoMo Shikoku to launch the QUICPay Mobile payment service using cell phones.
Even when he recently stopped at a canteen to buy a morning snack -- Gatorade and a Rice Krispies bar -- there was no wallet in sight. No cash or plastic either. He used his cell phone to pay, swiping it over an electronic reader.
Hernandez is one of almost 100 Discover employees testing what the credit card industry hopes will become a household staple: the wallet phone.
It's one of several tests under way in the United States with the goal of bringing the wallet phone into commercial use.
But the wallet phone must overcome consumer fears about security -- what if the phone gets stolen? And it must prove to the payment chain -- merchants and wireless phone networks -- that it saves money or boosts profit.
The wallet phone operates on contactless payment systems, which usually are based on a technology called near field communications.
In a contactless system, usually a special chip is embedded in a credit card. A reader at a cashier's station extracts information from the chip via radio waves. No card swipe is necessary.
The wallet phone runs on the same principal, except the chip is in the handset.
The device first made a splash in Japan several years ago. NTT DoCoMo, a leading Japanese wireless network, has sold its wallet phone services to more than 19 million subscribers.
The devices are popping up in other Asian nations too. ABI Research expects by 2011 wallet phones will comprise about 30 percent of the global cell phone market, or about 450 million phones.
"Some markets are already taking off, and that gives us a good feeling that some of the forecasts will materialize," said Gerhard Romen, head of Nokia's development program.
Finland-based Nokia, the world's largest cell phone-maker, is teaming with MasterCard for two U.S. wallet phone trials. One trial includes 7-Eleven; the other, Cingular Wireless and Citigroup.
Motorola, the world's second-biggest mobile phone-maker, has three wallet phone trials in operation, including the one with Discover.
Motorola is providing phones and software for the trial. If Discover rolls out the service commercially, it will be available on non-Motorola phones, too, but Motorola's M-wallet software will power the system.
If the wallet phone takes off, the device will do much more than just make transactions. It will hold coupons and loyalty-program points. And it will allow for paying bills and other forms of online banking.
But Discover's trial is limited to making credit card transactions and checking account information.
Hernandez, a customer services director at Discover, got a Motorola Slvr phone last month, downloaded his personal credit card account into it and began charging.
He said he doesn't like carrying a wallet and sometimes chooses not to. But he always carries his phone. So his new Slvr has become his currency at Discover, where the cafeteria and smaller canteens are equipped to handle contactless payments. Hernandez said he probably buys more snacks now because of the wallet phone.
"It's very handy," he said. "I use it all the time."
The device also has impressed his teenage sons, one of whom is a DePaul University freshman.
"The kids I interact with down there think it's great," he said. "My son says, `Dad, show them how you use your cell phone to pay bills.'"
The college-age demographic could be the wallet phone's sweet spot.
Consumers between 18 and 24 years old are most likely to swap their wallets for wallet phones, according to Javelin Strategy & Research, which tracks the payments industry.
In a recent Javelin survey, nearly 20 percent of consumers in that age bracket said they would most likely use their cell phone for contactless transactions over other devices such as a contactless credit card or key fob. That's the good news for Discover and Motorola.
Here's the bad news: Only 8 percent of consumers in general said they would do the same, according to Javelin's survey.
That split between young and old is indicative of a larger issue for contactless technology. A significant number of consumers surveyed by Javelin say they aren't interested in contactless cards or phones because they seem less secure than a traditional credit card.
But the perception doesn't fit the reality, said Javelin's Bruce Sundin.
"It's a new technology-adoption issue," he said. Personal identification numbers are required to access a wallet phone account, just like at an automated teller machine, he said.
Plus, consumers will have no liability for credit card losses associated with the theft of a wallet phone, the same as it is with plastic cards, Sundin noted.
Changing consumers' perception is just one hurdle for the wallet phone.
Merchants must be convinced that contactless payment systems are worth the investment, currently about $100 to $200 per cashier's station.
One benefit for merchants: Consumers might use a wallet phone for transactions they normally would make in cash, giving them the means -- credit -- to buy more. The main benefit, though, is speed.
It takes a few seconds less for a clerk to process a transaction from a contactless card than one from a traditional card. It's the same for the wallet phone, as long as customers power up their phones and call up their accounts before they're ready to pay.
Discover declined to say how many retailers in its network have deployed contactless technology.
MasterCard offers contactless payment at 46,000 merchant locations, including myriad McDonalds and CVS outlets. Still, that pales compared with the 23 million locations that accept traditional MasterCards.
Joby Orlowsky, Discover's vice president of network marketing, said the wallet phone's growth in usage will move parallel to merchants' adoption of contactless payment systems.
But he noted that Discover and other card associations such as MasterCard often subsidize the adoption of new technology, helping to defray a merchant's costs for new equipment.
For credit card companies and banks, wide acceptance of the wallet phone promises major savings.
"Printing and sending out credit cards costs a lot of money and takes time," said Jonathan Collins, a wireless-payments industry analyst at ABI Research.
With a wallet phone, consumers can ditch plastic and quickly download a credit card account from the Internet.
Discover plans to offer its wallet phone service through several wireless phone networks.
Wireless carriers are another piece of the wallet phone puzzle. They're the primary retail gateway for cell phones in this nation, and the special chips add to the cost of a handset.
Currently, the chips would raise the price of a phone by $20 to $30, though that cost will fall as volume ramps up, said Navin Mehta, vice president of services in Motorola's networks division.
So, what's in it for the wireless carriers?
More loyalty from customers who take a shine to a wallet phone, experts say. But wireless carriers also will need to see a revenue boost in order to push the concept, said ABI's Collins, and it's not exactly clear yet how that will occur.
"If they don't want NFC (chips) in phones, (wallet phones) won't get made," he said.
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(c) 2007, Chicago Tribune. Distributed by McClatchy-Tribune Information Services via Newscom.
